Japan Homebuyers to Get Clue on Higher Mortgages After BOJ Jolt

Home hunters in Japan just got a good hint about how much more they may have to pay for a popular fixed-rate mortgage after the Bank of Japan surprised markets this week by doubling its yield cap on the 10-year government bond.

Japan Housing Finance Agency، a government-backed home-loan financier، priced on Thursday residential mortgage-backed securities at a coupon that was about a quarter percentage point higher at 1.02% than last month. That could lead to a corresponding jump in mortgage rates if the higher yields are passed on in full.

The cheapest rate on the agency’s 35-year fixed-rate mortgage، which backs the RMBS، had already climbed to the highest since 2014 earlier this month at 1.65%، after the BOJ came under pressure to adjust its monetary policy following an unprecedented streak of rate hikes by the US Federal Reserve.

The JHF has helped provide loans for the purchase of at least 1.3 million homes in Japan through its so-called “Flat 35” fixed-rate plan، which is a benchmark for mortgage rates in the nation. Higher interest costs will add to strains on Japanese household purses after consumer prices accelerated by their fastest pace in four decades recently، albeit with inflation still under 4%.      

The “Flat 35” mortgage is offered by private financial institutions، which JHF then purchases from lenders، repackages and sells to investors as RMBS.      

The spread on JHF’s 35-year RMBS was 56 basis points، according Mizuho Securities Co.، one of the deal managers. That is the most since the BOJ announced its negative-interest rate policy in January 2016، and 5 basis points higher than last month. 

The coupon on the RMBS is a product of the spread over the 10-year Japanese government bond and the yield on that note، both of which have been rising this year. 

The BOJ’s decision to double its yield-curve cap on the 10-year JGB to 0.5% from 0.25% will almost certainly push up mortgage-interest rates next year، though the relationship between the coupon on JHF’s RMBS and its home-loan rates isn’t a simple direct one.